As of February 2nd, 2019, we have been in the longest bear market Bitcoin has faced in its 10-year history. Many people got into cryptocurrencies in the bull run from September 2017- January 2018. Everyone, especially those people have one major question in mind, “Will Bitcoin recover?”
There is no way to know if/when this will happen but be assured, there is a lot happening behind the scenes and the price doesn’t reflect this. The below reasons are my personal beliefs as to why the price of Bitcoin will recover. Just to highlight them:
- The Lightning Network has increased in network capacity from about 1 BTC in January 2018 to about 637 BTC (at time of writing) along with close to 3,000 Lightning Network nodes.
- Institutional investment is setting itself up around the world with products like the Swiss ETP HODL and Grayscale in US markets. In the future, there will be products like Bakkt, Fidelity’s custodial service, and an American Bitcoin ETF which according to SEC Commissioner, Robert J. Jackson Jr., is inevitable.
- In May 2020 there will be the third Bitcoin halving which will drop block rewards from 12.5 BTC every ten minutes to 6.25 BTC.
- Bitcoin can realistically be considered a hedge against fiat dollars for many countries that have corrupt governments and rampant inflation due to holding all six characteristics of sound money: durability, portability, acceptability, limited supply, divisibility, and uniformity.
The Lightning Network
There is a large debate on how Bitcoin should scale and both sides make valid points. I do agree that Lightning Network gives Bitcoin the most “Mastercard like” feel to transacting with businesses and other people. The LN allows for near-instant payments (like our current credit/debit card system).
This technology has increased capacity over 600 times just in the 12 months. While this is a great start we still have a very, very long way to go as LN’s capacity only reaches about 0.0037% of the total Bitcoin circulating supply. But having said that, adoption will happen when it is easier, cheaper, and just as fast (or faster) than our current system.
Bitcoin’s network doesn’t get shut down due to server errors, fires, electrical problems, or any other problems centralized parties (banks) have. Just yesterday the multi-hundred billion dollar bank, Wells Fargo, was ground to a halt during business hours due to server issues. This doesn’t happen in a decentralized system like Bitcoin.
This technology isn’t perfect but it doesn’t need to be.
For the past 15 months we have been hearing, “The herd is coming,” and clearly it hasn’t. Well, this time might be different. In the past few weeks, we have received great news from the CBOE/Van Eck and Fidelity camps. The Van Eck Bitcoin ETF proposal has officially been re-filed by the CBOE with the SEC and Fidelity is creating a cryptocurrency custody service.
This space needs more traditional financial companies that can bring trust with them. Fidelity, Van Eck, and the CBOE are some of the largest and most trusted companies in the traditional finance world. If they are entering the cryptocurrency space, it is because they see value in it and a future for it.
Also, don’t forget about Bakkt or the Bitwise ETF. The parent company of the New York Stock Exchange is launching a physically backed futures market. While the launch has been pushed back a few times, it is just waiting on CFTC approval for the green light to begin trading.
The Bitwise ETF is just as promising as the Van Eck ETF. They have John Hyland who has overseen many first ETF’s come to fruition on his watch. His influence and presence shouldn’t be overlooked as unimportant.
In addition to what is coming, it is important to take stock (pun intended) in what stocks you can already buy across the world. For example, while there is a premium associated with it, Grayscale is one of the only ways, in American markets, to buy Bitcoin and other cryptocurrencies on a regulated market. By buying their stock, you have “claim” to a percentage of their underlying cryptoassets (based on shares).
For the European markets, there is the Swiss product, HODL. This product was actually the world’s first Bitcoin ETP (exchange-traded product) and is another great way to get direct exposure to the space without worrying about custody.
Don’t let your eyes fool you. There is a lot going on behind the scenes with companies around the world. Once regulation issues can be figured out (mostly for institutions), there seems to be a lot of interest readily available.
Roughly in May 2020, the third Bitcoin halving will occur. It will drop block rewards from 12.5 BTC every ten minutes to 6.25 BTC. While this doesn’t automatically make Bitcoin more expensive, it makes it rarer. According to basic economics when supply drops, demand rises and thus we might be just around the corner of the relief rally.
There isn’t an exact science as to the price to mine a single Bitcoin and since it isn’t good business to perform any task at a loss, I can foresee a price increase to match the supply drop.
Weak Fiat Currencies
Many people in the western world don’t need Bitcoin or any other cryptocurrencies because they have a stable currency along with a trusted government. Having said that, most of the world does need Bitcoin. This is due to corrupt governments who inflate their fiat currencies to no end.
Some of the world’s worst offenders are Venezuela, Turkey, Argentina, Zimbabwe, Sudan, and Iran (more listed here). There are hundreds of millions of innocent people in those countries where large percentages of their wealth are lost, on a daily basis, due to inflation and lack of government trust (essentially all fiat currencies are backed by government “trust”).
The below chart is a breakdown of ownership of cryptocurrencies for many countries.
In this day and age where everyone is connected by the internet, why can’t there be a common currency accepted as value everywhere? Nations don’t need to adopt it as their currency of choice, only the citizens need to see it as valuable.
The concept of money and currency is really just technology. It allows for an easier way to exchange value between two or more parties. Over the years, it has changed forms many times and I expect it to change again.
Gold and especially silver used to work well as currency because governments couldn’t create it, but in this digital age, it isn’t realistic to be currency anymore. It is too heavy and can’t conveniently be used to buy goods and services over the internet.
This is where Bitcoin steps in. Because there is no ruler in Bitcoin, it can’t be mined any more than the mathematical equation will allow (12.5 BTC every ten minutes).
If governments around the world continue to take advantage of their citizens and print their fiat currencies to no end, I see a scenario where many people move their wealth to a sound money that is all of the following; durable, portable, divisible, uniform, limited in supply, and acceptable. Bitcoin has all of those characteristics.
While there is always the chance that Bitcoin continues to fall, there is no guarantee it will happen. What is guaranteed is that governments will continue to print their fiat currencies and they will continue to lose value.
Going back to basic economics when supply increases, demand decreases, and prices drop (fiat currencies). On the opposite side of the coin, supply decreases, demand increases, and prices rise (Bitcoin). There is no guarantee Bitcoin will ever recover or become common currency across the world. But which scenario seems more promising and delivers more value to everyday people?
The beautiful thing about Bitcoin is that if you don’t agree with anything I said, you can continue using your countries fiat currency. But there is no guarantee that the opposite argument holds true. Bitcoin allows choice.
The combination of the previous four reasons is why I believe Bitcoin will recover. Please do your own research as this is my own opinion and not financial advice.